Washington Plays Familiar Blame Game in Wake of Credit Downgrade
August 8, 2011
By now, most people inside and outside the beltway have heard that Standard and Poors (S&P) has downgraded the United States’ credit rating. In short, it means that, according to S&P, investing in the United States is riskier today than it has ever been. Like any good crisis, both sides of the political aisle are blaming the other side for the downgrade. Republicans have called for the resignation of Secretary Treasurer Tim Geithner and Democrats have blamed the Tea Party for the downgrade with the Vice President of the United of the States agreeing with a characterization that the Tea Party acts like terrorists.
First it is important to understand what this downgrade means. According to the Washington Post, “The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up.”
Among the five things to remember after this downgrade, according to the Post, is that the country’s interest rate may rise. “The downgrade reflects a lack of confidence in the U.S. government to pay its debts over time. Riskier countries have to pay higher interest rates, just as riskier consumers do. S&P’s decision rocked the United States — and the world — because the nation has generally been considered one of the safest investments around.”
Also, the Post warns that when the government pays more, so do you. “The interest rate the United States pays on its short-term loans is determined by the market for Treasury bills. The downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money. Many consumer loans, such as credit cards and mortgages, are linked to the yield on Treasuries and therefore would also rise.”
The Post also describes the worst case scenario. “The S&P downgrade is likely to be a blow to the economy. The real pain won’t be felt unless the two other ratings agencies, Moody’s and Fitch, follow suit. Last week, the companies said they still believe the United States deserves the highest credit rating — but they warned that could change. To hold on to its credit rating, the country must reduce its debt and stabilize the economy, the firms said.”
The reaction by Congress and the White House has been to blame each other. According to Politico, David Axelrod (one of Obama’s 2012 campaign strategists) said that, “’It was something that should never have happened that clearly is on the backs of those who were willing the see the country default: those very strident voices in the tea party.’” Also, “Axelrod called Friday’s action by S&P’s ‘a tea party downgrade,’ a reproach echoed verbatim on NBC’s ‘Meet the Press’ by Democratic Sen. John Kerry of Massachusetts.”
And, according to an August 1 article in Politico, “Vice President Joe Biden joined House Democrats in lashing tea party Republicans Monday, accusing them of having ‘acted like terrorists’ in the fight over raising the nation’s debt limit, according to several sources in the room. Biden was agreeing with a line of argument made by Rep. Mike Doyle (D-Pa.) at a two-hour, closed-door Democratic Caucus meeting.”
And, Republican officials have called for Treasury Secretary Tim Geithner’s resignation. According to The Hill, “House Speaker John Boehner (R-Ohio) wants Timothy Geithner to resign as secretary of the Treasury, according to an aide to the GOP leader. Boehner has called on Geithner to step down before, but an aide to Boehner reaffirmed Saturday morning that the Speaker wants Geithner to leave.”
It is time for both republicans and democrats to take responsibility for what has happened. Congressional republicans and democrats have never taken the spending crisis seriously and President Obama and his economic team have made the situation worse by spending money we don’t have on a failed economic stimulus and health care. The American taxpayer wants solutions, not bickering.